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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Great Elm Capital Group, Inc. Reports First Quarter 2020 Financial Results

November 12, 2019

# Significant quarter-over-quarter DME revenue growth in major product categories # New positive air pressure (“PAP”) patient setups increased by approximately 22.0%, year-over-year # Investment Management reports free cash flow of $0.3 million for the three months ended September 30, 2019, up from $(0.1) million in the prior quarter

WALTHAM, Mass., Nov. 12, 2019 (GLOBE NEWSWIRE) -- Great Elm Capital Group, Inc. (NASDAQ: GEC, “Great Elm”) announced its financial results for the quarter ended September 30, 2019. Great Elm will host a conference call and webcast on Tuesday, November 12, 2019 at 5:00 p.m. Eastern Time to discuss its first quarter 2020 financial results. Please see below for details.

Select highlights from the first quarter 2020 include:

# Operating Companies: ▪ For the three months ended September 30, 2019, $13.2 million of revenue, $0.8 million of net loss and $3.0 million of adjusted EBITDA ▪ Invested heavily in people, processes and technology to enhance our scalable infrastructure, capable of supporting multiple acquisitions per year ▪ Management team has identified a large number of potential acquisition targets with strong product fit ▪ Outlook for continued growth in fiscal year 2020 underpinned by key performance indicators # Investment Management: ▪ For the three months ended September 30, 2019, $0.9 million of revenue, net loss of $0.05 million and $1.0 million of adjusted EBITDA ▪ For the three months ended September 30, 2019, $1.0 million of adjusted EBITDA up 64% vs. $0.6 million during the same period in the prior year ▪ For the three months ended September 30, 2019, quarter-over-quarter management fee growth of approximately 2.2% ▪ Outlook for continued free cash flow growth in fiscal year 2020 based on an increase in management fee revenue and the termination of the Full Circle consulting agreement

“We have made, and will continue to make, significant investments in our DME business in order to develop a scalable platform, capable of supporting organic growth as well as numerous identified acquisition opportunities,” remarked Peter A. Reed, Great Elm’s Chief Executive Officer. “Furthermore, we believe our Investment Management business is poised for continued free cash flow growth.”

Alignment of Interest

The employees of Great Elm and Great Elm Capital Management, Inc. (“GECM”) collectively own approximately 2.0 million shares of GEC stock, representing approximately 8% of its outstanding shares. Additionally, the directors of Great Elm collectively own or manage greater than 11% of Great Elm’s shares. Altogether, insiders collectively own or manage approximately 19% of the company’s outstanding shares, which Great Elm believes fosters a strong alignment of interest between employees, directors and the company’s shareholders.

BUSINESS OVERVIEW

Great Elm is a diversified, publicly-traded holding company that seeks to build long-term shareholder value across three verticals: Operating Companies, Investment Management and Real Estate.

Operating Companies

In the three months ended September 30, 2019, DME generated $3.0 million of adjusted EBITDA. During the third quarter DME experienced meaningful growth in major product categories. Management anticipates continued growth in fiscal year 2020, supported by encouraging key performance indicators, including approximately 22.0% year-over-year growth in PAP patient setups.

The team continues to pursue M&A opportunities with complementary product profiles that increase market penetration and extend existing geographic markets.

Investment Management

In the three months ended September 30, 2019, Investment Management generated $1.0 million of adjusted EBITDA, up 64% year over year. Adjusted EBITDA growth was driven by a significant reduction in operating expenses, as management continues to focus on operational efficiency.

Great Elm’s management team believes the Investment Management business is scalable, offers attractive margins and, when coupled with growth in assets under management, provides for the potential to generate incremental EBITDA.

Great Elm seeks to grow assets under management through capital raises and M&A. If successful, growth in assets under management should result in increased management fee revenue for GECM. This increase in management fee revenue should drive future free cash flow generation, aided by the termination of the Full Circle consulting agreement in November 2019.

Alongside Great Elm Capital Corp., Great Elm Opportunities Fund I, LP and existing separately managed accounts, Great Elm continues to seek avenues for growth, potentially launching additional private funds and pursuing opportunistic acquisitions in the business development company space.

Real Estate

In the three months ended September 30, 2019, Real Estate generated $1.3 million in rental revenue and $1.1 million of adjusted EBITDA.

Great Elm continues to focus on credit tenant lease financings and ground lease structures across a variety of commercial, government and other properties. Great Elm’s substantial tax assets can make it a value-added partner or lessor. While Great Elm selectively pursues compelling real estate opportunities from time to time, it does not currently see an abundance of attractive potential acquisitions in what appears to be a relatively overheated market.

FINANCIAL REVIEW: SEGMENT FINANCIALS

As of September 30, 2019, Great Elm had four operating segments: Durable Medical Equipment, Investment Management, Real Estate and General Corporate.

Durable Medical Equipment

Three Months Ended September 30, 2019:

Revenue:

# During the three months ended September 30, 2019, Great Elm recognized $13.2 million in total revenue vs. $4.1 million during the approximately one month of operations ended September 30, 2018.

Net Income (Loss):

# During the three months ended September 30, 2019, Great Elm recognized a net loss of $0.8 million vs. less than $0.1 million of net income during the approximately one month of operations ended September 30, 2018.

Adjusted EBITDA:

# During the three months ended September 30, 2019, Great Elm recognized $3.0 million in adjusted EBITDA vs. $1.3 million during the approximately one month of operations ended September 30, 2018.

Investment Management

Three Months Ended September 30, 2019:

Revenue:

# During the three months ended September 30, 2019, Great Elm recognized management fee revenue of $0.8 million vs. $0.8 million during the same period in the prior year. # During the three months ended September 30, 2019, Great Elm recognized total investment management revenue of $0.9 million vs. $0.9 million during the same period in the prior year.

Net Income (Loss):

# During the three months ended September 30, 2019, Great Elm recognized a net loss of $0.05 million vs. a net loss of $0.7 million during the same period in the prior year.

Adjusted EBITDA:

# During the three months ended September 30, 2019, Great Elm recognized adjusted EBITDA of $1.0 million vs. $0.6 million during the same period in the prior year.

Real Estate

Three Months Ended September 30, 2019:

Revenue:

# During the three months ended September 30, 2019, Great Elm recognized $1.3 million in rental revenue vs. $1.4 million during the same period in the prior year.

Net Income (Loss):

# During the three months ended September 30, 2019, Great Elm recognized $0.1 million in net income vs. $0.1 million in net income during the same period in the prior year.

Adjusted EBITDA:

# During the three months ended September 30, 2019, Great Elm recognized $1.1 million in adjusted EBITDA vs. $1.1 million during the same period in the prior year.

General Corporate

Three Months Ended September 30, 2019:

Revenue:

# During the three months ended September 30, 2019, Great Elm recognized $0.02 million in revenue vs. $0.02 million in revenue during the same period in the prior year.

Net Income (Loss):

# During the three months ended September 30, 2019, Great Elm recognized $2.5 million in net loss vs. net loss of $1.4 million during the same period in the prior year.

Adjusted EBITDA:

# During the three months ended September 30, 2019, Great Elm recognized $(1.7) million in adjusted EBITDA vs. $(1.4) million during the same period in the prior year.

Conference Call & Webcast

Great Elm will host a conference call and webcast on Tuesday, November 12, 2019 at 5:00 p.m. Eastern Time to discuss its first quarter 2020 financial results.

All interested parties are invited to participate in the conference call by dialing +1 (844) 559-0750; international callers should dial +1 (647) 689-5386. Participants should enter the Conference ID 1180236 when asked. For a copy of the slide presentation that will be referenced during the course of our conference call, please visit: https://www.greatelmcap.com/events-and-presentations/default.aspx.

The conference call will be webcast simultaneously at: https://event.on24.com/wcc/r/2079890/B38EB6281BF27A7531852C0DFABBCF62.

About Great Elm Capital Group, Inc.

Great Elm is a publicly-traded holding company that seeks to build a business across three operating verticals: Operating Companies, Investment Management and Real Estate. Great Elm’s website can be found at www.greatelmcap.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements in this press release that are “forward-looking” statements, including statements regarding revenue, adjusted EBITDA, expected growth, profitability, free cash flow and outlook involve risks and uncertainties that may individually or collectively impact the matters described herein. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made and represent Great Elm’s assumptions and expectations in light of currently available information. These statements involve risks, variables and uncertainties, and Great Elm’s actual performance results may differ from those projected, and any such differences may be material. For information on certain factors that could cause actual events or results to differ materially from Great Elm’s expectations, please see Great Elm’s filings with the SEC, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Additional information relating to Great Elm’s financial position and results of operations is also contained in Great Elm’s annual and quarterly reports filed with the SEC and available for download at its website www.greatelmcap.com or at the SEC website www.sec.gov.

Non-GAAP Financial Measures

The SEC has adopted rules to regulate the use in filings with the SEC, and in public disclosures, of financial measures that are not in accordance with US GAAP, such as adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). Adjusted EBITDA is derived from methodologies other than in accordance with US GAAP. Great Elm believes that Adjusted EBITDA is an important measure for investors to use in evaluating Great Elm’s businesses. In addition, Great Elm’s management reviews Adjusted EBITDA as they evaluate acquisition opportunities.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it either in isolation from, or as a substitute for, analyzing Great Elm’s results as reported under US GAAP. Non-GAAP financial measures reported by Great Elm may not be comparable to similarly titled amounts reported by other companies.

Set forth below is a reconciliation of Adjusted EBITDA to the most directly comparable US GAAP financial measure, net income. The information in the table below represents Great Elm’s assumptions and expectations in light of currently available information. Great Elm’s actual performance results may differ from those projected in in the table below, and any such differences may be material.

For the three months ended September 30, 2019 --------------------------------------------------------- $ in thousands DME Investment Real Estate General Consolidate Management Corporate d --------- --------- ----------- ---------- ---------- EBITDA: Net income (loss) - GAAP $ (819 ) $ (45 ) $ 60 $ (2,474 ) $ (3,278 ) Interest expense 996 42 658 - 1,696 Depreciation & Amortization 2,508 179 431 - 3,118 Tax expense - - - 242 242 ------------------------------------ - ----- - - ----- - - ----- --- - ------ - - ------ - EBITDA 2,685 176 1,149 (2,232 ) 1,778 Adjusted EBITDA Unrecognized incentive fees 1 - 655 - - 655 Stock based compensation - 175 - 118 293 Change in contingent consideration 2 - - - (195 ) (195 ) GECC Unrealized (gains) / losses - - - 983 983 Dividend income from GECC - - - (490 ) (490 ) Other (income) expense (3 ) - - - (3 ) Transaction and integration costs 2 148 - - 120 268 Severance 2 - - - 2 Pharmacy buildout 135 - - - 135 DME management and Monitoring fees 48 - - (23 ) 25 Adjusted EBITDA $ 3,015 $ 1,006 $ 1,149 $ (1,719 ) $ 3,451 ------------------------------------ - ----- - - ----- - - ----- --- - ------ - - ------ - For the three months ended September 30, 2018 --------------------------------------------------------- $ in thousands DME3 Investment Real Estate General Consolidate Management Corporate4 d --------- --------- ----------- ---------- ---------- EBITDA: Net income (loss) - GAAP $ 27 $ (689 ) $ 51 $ (1,398 ) $ (2,009 ) Interest 286 44 665 - 995 Depreciation and amortization 423 136 431 - 990 Taxes - - - - - ------------------------------------ - ----- - - ----- - - ----- --- - ------ - - ------ - EBITDA $ 736 $ (509 ) $ 1,147 $ (1,398 ) $ (24 ) Adjusted EBITDA: Stock based compensation - 545 - 128 673 Dividend income from GECC (56 ) - - (434 ) (490 ) GECC Unrealized (gains) / losses 80 - - (985 ) (905 ) Unrecognized incentive fees earned 1 - 576 - - 576 DME management and monitoring fees 18 - - (18 ) - Transaction costs 542 - - 1,324 1,866 Adjusted EBITDA $ 1,320 $ 612 $ 1,147 $ (1,383 ) $ 1,696 ------------------------------------ - ----- - - ----- - - ----- --- - ------ - - ------ -

(1) Unrecognized incentive fees earned include amounts earned under investment management agreements which are not recognized under US GAAP. Acquisition and integration related costs include transaction costs, costs to integrate acquired (2) businesses and changes in the fair value of the contingent consideration liability since the initial valuation at the acquisition date. (3) Our durable medical equipment business began in September 2018 and there was no related activity prior to that date. (4) General Corporate net loss includes net loss attributable to discontinued operations.

Media & Investor Contact:

Investor Relations+1 (617) 375-3006 investorrelations@greatelmcap.com